Viva Tequilas! Spirits Regroup

Submitted by Tequila.net
May 29, 2007

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In a small village in southwestern Mexico, Brown-Forman Corp. is creating a production hub where four lines of tequila will be distilled and bottled.

The Louisville company said yesterday that it plans to consolidate all of its tequila brands at Hacienda San Jose Del Refugio, a distillery that it acquired in January as part of the $776 million purchase of Casa Herradura tequila.

The facility, deep in the heart of agave country in Jalisco state, already makes the el Jimador and Herradura brands. It soon will add the smaller Pepe Lopez and Don Eduardo tequilas, currently made nearby.

The consolidation plan announced yesterday makes sense on multiple fronts, said Brian Sudano, managing director at BMC Strategic Associates in New York.

A large supply of agave -- a key ingredient in tequila -- is available at the Casa Herradura facility in Amatitan, he said, and production lines will run more efficiently with the extra volume.

In a statement yesterday, Brown-Forman President and Chief Executive Paul Varga called the consolidation a "natural step" due to the acquisition of Casa Herradura.

"Just as our many successful American whiskey brands fit nicely into our portfolio, our premium and super premium tequilas will complement one another, as each tequila brand is uniquely positioned and differentiated," Varga said.

The source of agave could change for the various brands, but company spokesman Phil Lynch said customers won't notice a difference. There is extra capacity in Amatitan, both for the two smaller tequilas and for future growth at el Jimador and Herradura, he said.

The move should be completed in the next several weeks, Lynch said. No changes in employment are expected.

Tequila represents about 5 percent of the domestic spirits market, but its annual case volume is growing in the mid-to-high single digits, fueled mostly by expansion at the high end.

Having all of its tequilas under a single roof will make it easier for Brown-Forman to map out the future of all four brands, Sudano said.

One potentially tricky issue, he said, could be the handling of Pepe Lopez and el Jimador in the United States. Both are positioned toward the lower end of the price spectrum. Pepe has a strong American following but is relatively small at just 170,000 cases annually. In contrast, el Jimador is sold mostly in Mexico but is far larger at 1.4 million cases.

Officials at Brown-Forman didn't address their specific plans for the company's tequila portfolio yesterday, and Sudano said it's unclear whether there are major changes in store or simply a shift in marketing or price point.